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Strategies for reducing estate tax

Although the current federal exemption is more than $11 million, some Georgia residents may still need additional protection against estate taxes. Annual gifting is one way to do this. Individuals can gift $15,000 per year per recipient, and this means couples can gift $30,000.

Charitable giving, particularly using a charitable lead trust, is another way to reduce estate taxes. The CLT makes annuity payments to the charity, and when a certain time period has passed or the settlor dies, the remaining assets go to a beneficiary. With an irrevocable trust, assets are removed from the estate. However, the settlor can still control the management of those assets.

If it is not possible to wholly eliminate estate tax, beneficiaries will need access to a liquid asset so they do not have to sell other property in order to pay it. A life insurance policy, generally single premium whole life insurance, can function in this way by providing immediate funds to beneficiaries, but it cannot be owned by the estate owner or it will be counted as part of the estate's assets. One solution to this is an irrevocable life insurance trust.

People may want to consult an attorney to discuss the best strategies for reducing estate tax as well as to keep abreast of any changes in tax law that may affect those choices. For example, there is a sunset provision for the estate tax exemption, so that could change in the years ahead. Divorces, births, deaths and marriages may also require an estate plan to be altered along with a change in assets. One element of estate planning people must be careful not to overlook in these reviews is the beneficiary designation since it will override contrary language in a will.

Source: Dallas Business Journals, "Your guide to reducing estate taxes", Felix Meneses, Sept. 24, 2018

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